Comparing Shipping Rates in 2018:

Shippers can be forgiven if they have white knuckles from all the turbulence they endured in the industry over the past two years. Carriers that charge fees with increased granularity, more demanding customers, and divergent fee methodologies have rocked a part of business that was once fairly straightforward.

But those factors have also created opportunities — particularly for those armed with intelligence tools they need to compare parcel delivery rates and navigate this new shipping frontier.

Here’s a quick review of the recent past, plus a look at the shipping industry outlook.

What’s Next For Parcel Shipping Companies?

So how did we get here? There are four significant changes that shaped today’s landscape: the rise of dimensional weight, carriers who no longer act in concert when it comes to rate increases, peak shipment surcharges, and recent general rate increases.

The Rise Of Dimensional Weight

For years, both UPS and FedEx didn’t charge a dimensional weight fee. In most cases you could have a good idea of your shipping costs knowing nothing more than package size, distance shipped, and speed of delivery.

For instance, pretend you shipped lightweight yoga mats. These items would’ve been very inexpensive to ship, regardless of how much space was required to store them in shipping trucks or planes. When it came to fees, a three-pound yoga mat in a large box and a three-pound hard drive in a tiny box were essentially treated the same way. This created problems for carriers, who weren’t passing on the true cost of shipping bulky, light packages.

Consequently, shipping companies announced they would start charging dimensional weight fees. The goal of the fee was simply to make the cost of shipping more fair. But it also added additional complexity to calculating shipping costs — which added headaches for shippers.

Though there were some grumbles of dissatisfaction with dimensional weight fees when they were introduced, the practice was mostly accepted. After all, it was only applicable items larger than three cubic feet. If you only shipped smaller items, you weren’t affected by it at all.

But alas, those simpler times didn’t last forever. Today, every package is subject to the dimensional weight rule.

FedEx modified its dimensional weight divisor from 166 to 139 on January 2, 2017. This change initially affected only the U.S. ground and Express shipments. When the carrier announced its 2018 general rate increase in September, it added FedEx SmartPost to the list of service levels with the 139 dimensional weight divisor.

UPS established a dimensional weight divisor of 139 for packages larger than 1,728 cubic inches or one cubic foot in size. The 166 weight divisor is used for all packages that are smaller than one cubic foot.

Carriers No Longer Raise Parcel Delivery Rates In Concert

Shippers once were able to count on carriers to be in lockstep when it came to rate increases. But that too is a relic of a simpler, bygone time. In 2016, carriers diverged in their rate increases. This compounded the complexities of managing transportation.

Shippers without analytical tools and personnel are at a disadvantage, thus making more complex than calculating percentage discount and minimum charge. A shipper will find it extremely difficult to ascertain the carrier with the best rates, especially when factors such as address corrections, DAS fees, residential fees, dimensional weight factor, transportation fees, and other surcharges are considered.

Peak Shipment Surcharge

A new peak surcharge fee was announced by UPS in June 2017, and it has been updated twice to expand its geographic reach. They also added extra charges for packages that are excessively heavy, packages going to Puerto Rico, Hawaii or Alaska, as well as packages from Hong Kong or China.

In November and December of 2017, businesses will be expected to pay between $0.27 and $0.97 per package. The actual figure depends on the carrier’s service level.
UPS remains the only major carrier to have announced a fee surge. FedEx, on the other hand, has decided to hold off on an across-the-board fee hike for the remainder of 2017, at least. They have focused their extra fees on items that are oversized or require special handling.

General Rate Increases

A general rate increase (GRI) of 4.9% was implemented by UPS in 2017 for air and ground service. FedEx, on the other hand, made different rate increases for these services. The average increase for ground was 4.9%, while an increase of 3.9% was implemented for air. The average rate increase for ground since 2008 has always been within the region of 4.9% and 5.9%, while air transportation has had average increase rates ranging from 3.9% to 6.9%.

Bear in mind that the General Rate Increase (GRI) averages the increase across all service types. Unless you’re a mega-shipper of all types of packages to all regions like Amazon, you probably won’t see a fee increase of exactly 4.9%. It might be more or (ideally) less depending on your shipping needs and strategy.

What’s Next for Parcel Shipping Companies?

There are some clear trends that allow us to peer into the shipping crystal ball.

Consumers Demand Next Day And Same-Day Delivery

Today’s consumers have a bit of Veruca Salt from Charlie and the Chocolate Factory in them. Their motto is “Don’t care how, I want it now!”

They used to be satisfied in waiting about a week to get a package. In recent years, their patience shrunk to the point that two-day shipping was the preferred method. And today, there’s an increasing demand for next day, or even same-day delivery.

These shifting consumer preferences have strained the capabilities of regional customized logistics and delivery companies. In order to keep up, it’s now necessary for them to maximize delivery density, boost driver production, and invest in more sophisticated technology solutions. In a world that demands blazing-fast delivery, peak efficiency is no longer a way to maximize profits — it’s table stakes.

Movement Toward Specialized Surcharges

Sadly, it’s just not reasonable for carriers to base shipping rate based on weight and distance traveled alone. To make shipping fees more accurately reflect the costs of shipping, shippers started piling on specialized surcharges. And it goes beyond mere dimensional weight and peak surcharges.

To take just one example, on January 4, 2016, UPS announced it would levy a 2.5% fee on shipments that are billed “third party.” This changed particularly affected drop shippers, whose entire business model relies on third-party billing.

These kinds of hyper-specific, granular surcharges will certainly increase in number in 2018 and beyond. What you ship, where you ship, when you ship, how you ship, who actually does the shipping and other factors will influence your ultimate shipping costs. These increased demands put a squeeze on shippers, particularly e-commerce retailers. While shipping rates tick upwards every year, product prices tend to remain flat. That means getting good rates will be the only way to best serve customers without shrinking already razor-thin margins.

Getting the best rates will require shippers to have a keen insight into how complex factors impact specific shipping demands and help from supply chain management services. Plus, shippers will need to be able to negotiate with carriers to get genuinely fair rates. However, navigating the parcel negotiation waters can be challenging.

Parcel delivery companies are making it more difficult than ever to negotiate competitive shipping rates. Strategic shipping decisions will almost certainly become a make or break edge for some businesses.

2. HOW TO COMPARE SHIPPING RATES

There are only two truly unstoppable forces in the universe: the overwhelming gravitational pull of a black hole and yearly shipping rate increases. The latter is true no matter where you turn: whether it’s FedEx, UPS, the postal service, or one of the smaller carriers. You can count on the fact that shipping is going to be costlier a year from now than it is today.

That’s the bad news.

The good news is that you can navigate increased shipping costs without seeing your shipping budget balloon uncontrollably. But first, you must understand data. And understanding data means two things: understanding how shipping companies use data plus your own unique shipping data.

Understanding Your Shipping Data

As you compare shipping rates, the first thing to do is understand every aspect of the packages you send. When you know exactly what your business ships, you’ll be in the best possible position to compare shipping rates. Here are the most important shipping metrics to understand.

Package Weight

How much do your shipments weigh? This is the most basic metric, and still one of the most impactful on shipping rates.

Parcel Volume

How much do you ship? This metric impacts how much leverage you have over shippers. High volume shippers carry enough clout to negotiate with major carriers. But if you’re a small or medium size business (SMB), it’s tougher to get significant shipping discounts. Carriers call these kinds of businesses low-volume, high-margin accounts (LVHM).

Shipment Geography

Where is the package shipping to and from? This is important for a handful of reasons. Firstly, the distance a package travels impacts the cost of the shipment. But it also impacts time-in-transit. And just to make things more complex, it doesn’t impact those two factors in the exact same way across carriers.

Since carriers have different networks, shipping with UPS might result in a shorter or longer delivery time than shipping with FedEx, depending on the points of origin and delivery. The companies have unique systems of hubs, trucks, planes, and other facilities, so the amount of time and effort required to deliver two identical packages is very different.

Residential vs Commercial Deliveries

Do your shipments typically go to homes or businesses?

If you primarily ship to residential addresses, then you’re paying more than someone who ships an identical volume of packages to commercial addresses. Carriers typically tack on an additional surcharge for residential deliveries, because it simply requires fewer resources to deliver shipments to commercial addresses.

Businesses are typically located in densely-populated areas that are closer to a shipping hub or center. Plus, carriers can typically rely on someone being present to sign for a package at commercial addresses.

There are certain exceptions to this principle. For example, if you ship mostly to urban, densely populated residential addresses, then your shipping rates might be closer to commercial shipping rates.

What To Look For When Researching A Carrier

Choosing a carrier (or mix of carriers) should be the start of a lifelong partnership that helps grow your operation, save you money, and make your clients or customers happy. So what should you consider when examining a shipping carrier?

Basic Rates

While list rates are only one factor in your overall shipping spend, it’s a major one. Both FedEx and UPS post their updated rate guides on their website for you to view. How does weight, geographical region, volume, and package dimensions affect basic rates?

Packaging Materials

Does the carrier provide standardized packaging materials to make shipping simpler? Do those materials satisfy your particular shipping needs?

Shipping Limits

What is the maximum weight and dimensions for shipments that a carrier can handle? What are the surcharges associated with oversized packages?

Delivery Markets

Do you only ship domestically, and don’t expect to ship internationally anytime soon? Then you don’t have to concern yourself with international shipping considerations. If you ship overseas, however, then it’s important to choose a carrier that serves those markets well.

Delivery Insurance

If you ship low-value items you’re probably covered if a package goes missing or is damaged. But what should you do if you ship high-end Rolex watches or other pricey goods? Every carrier has a different insurance policy, and you should check to ensure it properly covers the kind of items you ship before you settle on a carrier.

Package Tracking

Having access to clear, accurate information about package location and estimated delivery time can save you a lot of headaches. It won’t only help you understand the movements of your packages, but it will also give you information that you can relay to your clients or customers.

Carrier Software Options

What kind of web app, native app, or mobile app does the carrier offer? If you use multiple carriers, will you have to use third-party software in order to accurately keep track of your shipments? Is the software relatively bug-free and easy enough for everyone to use and access, from the C-level executives, to the customer service reps, to the people who run the warehouse?

Modern software solutions can be very sophisticated, allowing you to automatically handle charges in one account and provide you with a ton of data about deliveries.

Shipping Restrictions

Are there any restrictions on what you can and can’t ship? For example, USPS doesn’t allow shipments of alcohol without a license. Carriers also have regulations on shipping items with lithium-ion batteries (such as common electronics). If you ship perishable items, you’ll also have look into carrier-specific regulations, in addition to packaging that ensures items are delivered fresh.

Weekend Delivery

If your company ships products to consumers, weekend delivery is a must-have. Does your preferred carrier delivery on a Saturday? If so, what are the surcharges associated with weekend delivery?

Additional Surcharges And Fees

Does the carrier charge if an invalid address makes a package undeliverable? How much is the residential surcharge? Understanding all carriers fees is essential because even if the basic rates seem low, final costs can be high for your business after surcharges are taken into consideration.

Service Options

Understand their basic range of service options including ground, three-day, two-day, next business day, and even same-day. The more frequently your shipments require expedited shipping, the important these service options are.

Service Quality

This is perhaps the most important factor. But it’s hard to accurately know the quality from the carriers themselves, who naturally want to put their best foot forward. Still, you should try to understand basic factors such as shipping accuracy, how often packages reach their final destination on time, and the range of customer support options. If you have an issue or have to make a shipping insurance claim, you should be confident that you can resolve you can resolve your issues quickly.

Industry Benchmarks

How much do companies similar to yours pay for shipping? Carriers won’t release this information. However, industry insiders can estimate your competitors’ spending and give you a baseline to determine which carrier is the best fit.

Finding Carrier/Product Fit

Do you understand your shipping data and the facts about available carriers? Great. Now it’s time to see how well your shipping needs match with carrier service. The goal is to get the lowest cost, more effective service for your particular needs.

When choosing a carrier, however, you shouldn’t limit yourself to your current service needs. You should also think about how they fit in with your growth plans. If you expect to increase your shipment volume soon or expand into new markets, then you should ensure that they will be able to handle your future needs.

Using Multiple Carriers

After you’ve answered all these questions and find the best single carrier for you needs, you still might not have found the best shipping solution for you. While one carrier might be generally best, they might serve all of your shipping needs equally well. In those cases, it’s worth considering using multiple carriers.

For example, what if one carrier handles your domestic shipments well, but a different carrier is best for handling shipments to an overseas market? What if one carrier covers your typical, low-cost packages to your satisfaction, but a different one is ideal for high-value shipments?

Using multiple carriers adds a new level of complexity to your shipping, but it can save you money and hassle in the long run.

3. EVERYTHING YOU NEED TO KNOW ABOUT MAJOR CARRIERS

There are several carriers, but most serve smaller niche markets. The most important four carriers are FedEx, UPS, DHL, and the United States Postal Service.

Here’s an overview of how these companies got started, what services they offer, the surcharges they charge, and the pros and cons of each carrier.

FedEx

Background

FedEx famously started as a paper written by Yale University student Frederick W. Smith in 1965. In it, he proposed a new logistics system designed specifically to expedite shipments for time-sensitive items such as medicine and electronics. Smith received a mediocre grade for his idea, but he pressed ahead with it by founding Federal Express in 1973.

The company quickly established itself as a leader in express shipping and slowly grew into a multinational conglomerate. Today, it’s the second largest carrier with over $50 Billion in revenue and over 40,000 employees.

Benefits

Negotiable Rates

FedEx wants to keep you as a happy customer as you grow your business. That means that they’re open to lowering your rates, especially if you’re a high volume shipper. Your account manager is authorized to make mutually beneficial rate changes.

Are you only shipping a small volume of packages right now? If you’re predicting a high level of growth soon, you still might be able to save with FedEx. You may be able to negotiate for a provisional rate decrease that becomes permanent if you hit certain volume goals.

Known For Next Day Service

FedEx is a pioneer in next day delivery, and they offer a wide variety of urgent delivery options. This includes latest flight, next business day by 8:30 a.m., 10:30 a.m., and 3:00 p.m.

Drawbacks

Wide Array Of Surcharges

Working with FedEx means keeping a close eye on surcharges. There are several of them, as you can read below. They can cause your shipping budget to grow uncontrollably if you don’t know how to properly navigate them.

For example: do you frequently have to change the delivery address of an undeliverable package? Then take into account the address correction surcharge. Do you ship perishable items using dry ice as a refrigerant? Then calculate how much the dry ice surcharge will cost you. FedEx also reserves the right to assess a fuel surcharge without notice.

Independent Contractors Make Service Uneven Sometimes

Unlike USPS or UPS, FedEx relies upon a network of independent contractors. That allows them to be more nimble (plus save some money on payroll taxes), but it also means they don’t have total control over every part of their network. FedEx strives to work with reliable contractors, but some have reported that this results in uneven service.

United Parcel Service, based in Atlanta, is the largest package delivery organization in the world. In the industry, it’s earned the affectionate nickname “Big Brown” due to its iconic brown logo, trucks, and uniforms. It started in 1907 as a humble bicycle delivery service. Today, UPS boasts revenue of over $60 Billion and employs more than 434,000 people globally.

Benefits

Negotiable Rates

Like FedEx, base rates aren’t set in stone. UPS assumes that you’re going to negotiate for account-specific negotiated rates as you grow.

UPS SurePost

UPS SurePost is a unique service that combines the UPS Ground network and the U.S. Postal service. It’s an attractive and (affordable) option if a significant chunk of your shipments are non-urgent and residential.

Controls The Entire Network

When you ship UPS, the company operates every vehicle that transports your package, owns every facility that processes your package, and employs and every person who handles your package. That empowers a high degree of control and efficiency. It also means consistent, predictable service regardless of where or what you ship.

Base Services

UPS offers nine base domestic U.S. shipping services.

• Ground • Ground with Freight Pricing • Express Critical • 3 Day Select • Next Day Air Saver • 2nd Day Air • 2nd Day Air A.M • Next Day Air • Next Day Air Early

DHL is based in Bonn, Germany, but was founded by Americans in San Francisco in 1969. Founder Larry Hillblom got his first insight into logistics industry by working as a courier for an insurance company. When he graduated, he started a service that delivered documents between Honolulu and Los Angeles with two partners, Adrian Dalsey and Robert Lynn. The name “DHL” is the initials of the founders’ last names.

The company expanded to overseas markets in the ‘70s, and at the time was the only courier that offered international overnight delivery. Today, DHL Express, a division of Deutsche Post DHL, boasts revenue of €14 billion (around $16.5 Billion.)

Benefits

Great International Shipping

DHL is the largest international logistics company, and its reputation matches its size. It owns an expansive global network with deep penetration into Europe and Asia.

International Customs Expertise

As a result of their extensive international experience, DHL understands customs red tape better than just about anybody. They offer several fee-based customs services that can help

Drawbacks

No Domestic Express Shipping

You need to look elsewhere if you want comprehensive domestic service. Since DHL is no longer U.S. owned, it isn’t permitted to make deliveries between airports in the United States. In 2008, DHL discontinued its domestic-only air and ground services. Instead, the domestic air shipping is contracted out to American companies.

Base Services

DHL offers two basic services for non-urgent shipments. DHL transports the package to the country of origin and then the local postal service handles the final delivery.

• DHL Economy Select • DHL GlobalMail Business

DHL offers four “time-definite” services. These services deliver packages by a certain time the following day.

American postal service as about as old as the United States. On February 20, 1792, President George Washington signed the Postal Service Act. The law established the United States Post Office Department, the predecessor to the modern day United States Postal Service. Today, over half a million USPS employees deliver over 150 billion pieces of mail each year.

The USPS’ vast network, which includes tens of thousands of post offices, ensures that even people in the most rural regions of the country can receive timely parcel delivery. Shipments sent through the USPS are also protected through the United States Postal Inspection Service, which is the agency’s law enforcement and security division.

Just like private carriers, USPS offers negotiated pricing and package analysis services to help companies find the best service level to fit their needs.

Benefits

Hybrid Shipping Options

It’s possible to take advantage of USPS’ affordable delivery options even if you ship with FedEx or UPS. With systems such as UPS SurePost and FedEx SmartPost, the private carrier ships the package to the local post office, and USPS takes the delivery to the destination.

Standard Weekend Delivery

Private carriers typically deliver Monday through Friday, and can deliver on Saturday for an additional fee. However, USPS delivers packages on Saturdays for no additional fee. That extra day is significant: it boosts days by 20% at no cost to shippers. In many larger cities, the postal service will deliver on Sundays as well.

No Surcharges

USPS offers the simplest, easiest-to-understand fees around. Shippers pay the base rate for a service — and that’s it. There aren’t any surcharges for fuel, remote areas, additional handling, or anything else.

Keeping your shipping costs under control is a process that requires constant monitoring and adjustments. Here’s how you can master your shipping spend.

Know Your Data

The old cliche “what gets measured gets managed” applies here. You simply can’t control your shipping costs unless you understand how your company ships. In the industry today, understanding your shipping is all about raw shipping data.

That means understanding basic data such as your volume, weights, and shipping zones. But it also means understanding how many of your packages might subject you to surcharges, such as shipments that contain hazardous material, residential versus commercial shipments, and the number of packages that are undeliverable.

Negotiating Your Contracts

Complete understanding of your data is most important at the negotiating table. Before one of the parcel delivery companies cuts a deal with you, they want to understand your shipping profile. This is the overall picture of your shipping data, and how it fits into a carrier’s network and services. This information helps them understand how profitable you can be to them.

Obviously, higher volume shipping gives you more opportunities to negotiate discounts. But it is far from the only way to get better parcel delivery rates. For example, if you ship high weight packages to business destinations, your shipping profile probably has sizeable margins for the carrier. That gives you a lot of wiggle room for negotiations.

Things get more complicated, but potentially more profitable, when you understand how to compare shipping rates. Depending on your shipping profile, some carriers might be able to provide you better discounts than others. For any carrier you work with, the legitimate threat of taking your business elsewhere is your ultimate trump card. Grasping the difference between carriers helps you understand how (and when) to play it.

When negotiating discounts, it’s crucial to understand your price floors, which are also sometimes called “minimum charges.” High price floors can erase most of the benefits of negotiated discounts. This is why businesses need to understand more than how a negotiated contract can potentially save them in theory. They also need to understand how much a new contract will actually save them in practice, as it is revealed in your shipping data.

Negotiating with carriers, like all negotiations, always comes down to a battle of information. You want to have as much information as possible, about both your shipping data and how the carriers operate. The carriers, however, benefit from obscuring and concealing information. Knowledge isn’t just power, it’s the key to slashing costs today and for years into the future.

Audit Your Invoices

The invoices that your carriers send you are loaded with information that you can use to improve your shipping. They reveal facts about every single shipment you are charged for. By examining your invoices closely, you can discover opportunities to improve efficiency, track trends, and identify ways you can save money.

But analyzing these invoices, which can run a hundred pages or more, is easier said than done. Especially if you are a high-volume shipper, they are complex and are require you decipher their many codes that reveal shipping performance and surcharges.

Catching Errors And Collecting Refunds

Of course, one of the most important reasons you should audit your invoices is to keep your carrier honest. Every year, companies are owned around $2 billion in credit refunds. But companies only claim about a quarter of them. That’s $1.5 billion left on the table every year.

Here are just a few important things to check for when auditing your invoice for errors.

Discount application: Were the discounts agreed to in your contract properly applied?

Did the carrier make a simple calculation error that resulted in you being overcharged?

Were you mistakenly charged twice for the same shipment?

Were surcharges applied when they shouldn’t have been?

Are all relevant taxes applied correctly?

Were zone charges applied correctly?

In 2018 and beyond, auditing your invoices isn’t optional — it’s a necessity. Checking your invoices line by line can ensure you’re not spending a dime more on shipping costs than you’re supposed to.

Reveel helps our clients audit their invoices by performing a 45-point audit on every statement. Our software platform flags potential errors, including late shipments and incorrectly applied surcharges. We also follow up with carriers to ensure you get your money back.

Find A Trusted Partner

There’s no denying that understanding your data and how to leverage it properly is complex. This complexity is compounded by the fact that shipping companies intentionally make their pricing structure opaque. Consequently, two companies with similar shipping profiles can have wildly different contracts with the same carrier.

This is why having a trusted partner like Reveel is crucial for getting the best shipping rates. Our team of former shipping industry executives can clear the fog that normally surrounds rate negotiations. They know the benchmarks used to set shipping rates and how to effectively audit invoices. Having this kind of industry expertise in your corner can be the difference between unwittingly paying more than necessary and having the best shipping contract in your industry.

One of the most important ways our supply chain management services empower businesses is with the Reporting and Analytics tools. These online software tools do more than just track your shipping data. They also provide real-time insights that help you instantly understand what it all means. While data tracking is important, those raw numbers won’t give you an edge until you have an expert help you interpret them.

When you understand how carriers operate, and how your data fits into their pricing framework, you’re armed with the insights you need for effective negotiations that shrinks your shipping budget as much as possible.